the following information for the next two problems t this time, a T-bill has a

Question

the following information for the next two problems t this time, a T-bill has a 1.5% rate, the market's expected return i 9% Stock A has a beta of 1.70, and Stock B has a beta of 1.80. The expected returns for Stocks A and B have the following probability distributions: e State of the Economy Below average Average Above average Stock A -11% Probability 0.10 0.30 0.60 Stock B -8% 10 26 19 Calculate the expected rate of return for Stock A a. 16.58 percent b. 28.00 percent C 19.4 percent d. 17.80 percent e. 17.20 percent o The 95.5 percent confidence interval for Stock B is from: a. -4.58%

Explanation / Answer

Standard deviation is calculated as Square root of ( 125.16) = 11.1875

Upper boundary = Mean + 2 * Standard deviation = 17.8  + 2* 11.1875  = 40.18

Lower boundary = Mean - 2 * Standard deviation = 17.8 - 2 * 11.1875 = - 4.58

So select - Option - A

X P XP Dx Dx2 PDx2 -8 0.1 -0.8 -25.8 665.64 66.564 10 0.3 3 -7.8 60.84 18.252 26 0.6 15.6 8.2 67.24 40.344 Mean 17.8 Total 125.16 Standard deviation 11.18749

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